The Australian dollar remains set for an uncertain and volatile 2018 which will be heavily dependent on interest rate policy from the Reserve Bank of Australia (RBA) and also the US Federal Reserve. For the moment the Australian dollar has been boosted on the back of a weaker US dollar with political uncertainty and the recent government shutdown. The underlying question is how keen the RBA will be to raise interest rates this year. If the US Fed hikes 2-3 times this year as forecast then the RBA will need to carefully decide how it follows.
As things stand there is an expectation that the RBA will seek to raise interest rates in June 2018 but if the difference in rates between the US and Australia widens too much then the Australian dollar could come under some selling pressure. For the moment the future outlook on interest rates is less clear which is likely to result in considerable volatility for the Aussie as more direction from the RBA is offered. The RBA are likely to favour a weaker currency to help its export markets so the central bank may be keen to take a more relaxed view on events in the US and not rush to tighten policy. The Aussie could see a gradual weakening as the US raise interest rates in the Spring.
The US debt ceiling is expected to be reached sometime in March 2018. This is likely to be a political animal and finding agreement to extend could prove difficult. The Aussie could see material gains around this period and so clients looking to sell Australian dollars may wish to try and find an opportunity around this period.
Australian inflation data is released tomorrow and will be keenly observed by the RBA. A higher number could help see the pound rally.
Clients looking to buy Australian dollars with pounds have seen a good window of opportunity in the last week although the pound is struggling to climb much higher having broken through 1.75 last week. The mood on Brexit appears to be slightly more optimistic but even now in the second round of negotiations which commenced on Monday there is still much ambiguity. Discussion currently surround the so called transitional arrangement which so far appear less thorny.
However there could be complications and disagreement when it comes to the terms of the future trade agreement between Britain and the EU. Any souring of mood could see a sharp fall in the price of sterling and I would expect to see a number of drops in sterling as a direct result of these negotiations in the coming months. Buyers should be a particularly careful as it wouldn’t take much to see a sudden drop in the price of sterling.
To discuss your requirement and how to maximise on the rates of exchange as they become available please feel free to get in touch with me James at [email protected]